In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed. capital; labor labor; capital electricity; wages raw materials; labor capital; raw materials
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Suppose a firm is currently using 500 laborers and 325 units of capital to produce its product. The wage rate is $$\$ 25$$, and the price of capital is $$\$ 130$$. The last laborer adds 25 units to total output, while the last unit of capital adds 65 units to total output. Is the manager of this firm making the optimal input choice? Why or why not? If not, what should the manager do?
Which of the following is most likely an example of production inputs that can be adjusted in the long run, but not in the short run? (A) Amount of wood used to make a desk. (B) Number of pickles put on a sandwich. (C) The size of a McDonald's kitchen. (D) Number of teacher's assistants in local high schools. (E) The amount of electricity consumed by a manufacturing plant.
Suppose there are two inputs in the production function, labor and capital, and these two inputs are perfect substitutes. The existing technology permits 1 machine to do the work of 3 workers. The firm wants to produce 100 units of output. Suppose the price of capital is $750 per machine per week. What combination of inputs will the firm use if the weekly salary of each worker is $300? What combination of inputs will the firm use if the weekly salary of each worker is $225? What is the elasticity of labor demand as the wage falls from $300 to $225?
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